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The Long View
Brad Klontz: What's Your Money Script?
00:51:06
The author and financial psychologist discusses how early-life experiences shape our financial attitudes and habits—and how to flip the script.
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- [00:01]
Jackson Financial
At Jackson, we've created a digital retirement planning experience with you in mind. Visit Jackson.com to explore our easy to understand resources and user friendly tools that are designed to enable financial professionals and clients to plan a path to financial freedom. Jackson is short for Jackson Financial, Inc. Jackson National Life Insurance Company, Lansing, Michigan and Jackson National Life Insurance Company of New York, Purchase, New York.
- [00:27]
Disclosure Announcer
Please stay tuned for important disclosure information at the conclusion of this episode.
- [00:33]
Christine Benz
Hi and welcome to the Longview. I'm Christine Benz, Director of Personal Finance and Retirement Planning for Morningstar. Our guest on the podcast today is author and financial psychologist Dr. Brad Klontz. He's an Associate professor of Practice at Creighton University's Haider College of Business. He's also co founder of the Financial Psychology Institute and Managing Principal of your Mental Wealth Advisors, a fee only registered investment advisory. Brad is co author or co editor of nine books on the psychology of money, including his Latest start thinking 21 harsh truths to take you from Broke to Financial Freedom, which he co wrote with Adrian Brambilla. He is a Fellow of the American Psychological association and a former President of the Hawaii Psychological Association. He was appointed to the CNBC Financial Advisor Council in 2023 and received the 2018 and 20 Montgomery Warshower Awards from the Journal of Financial Planning, honoring the most outstanding contribution to the betterment of the financial planning profession. He received his Doctor of Psychology degree from Wright State University, his Master's Certificate in Personal Financial Planning from Kansas State University, his Master's in Counseling and Human Resources Development from South Dakota State University, and his Bachelor's degree in Psychology from Olivent Nazarene University. Brad is also a certified Financial Planner Professional Dr. Brad, welcome to the Longview.
- [02:02]
Dr. Brad Klontz
Thanks for having me.
- [02:03]
Christine Benz
Well, thanks for being here. We wanted to have you on this podcast for a while. We want to talk about your new book, but we want to get a little bit of background on you. Maybe you can talk about what your initial attraction was to your current field of financial psychology.
- [02:20]
Dr. Brad Klontz
So it really started as a bit of a personal journey. I grew up lower income and if you're like below middle class you become very aware of how there's disparities that are going on. It's so interesting as you become wealthier you become less aware and I guess you could call it economic privilege where when you're underprivileged it's really clear to you every single day how other people seem to be having better experiences in life and more opportunities and more exposure to fun and safety and opportunities. And so as a Child. I was sort of acutely aware of this. I actually remember going to a friend's house when I was in middle school, and I thought they were very rich because they had more than one bathroom. And I remember interviewing my friend's father to almost like a reporter, as I think about it, like a psychologist, trying to figure out, like, how was he thinking about money and how did he get a job that allowed them to get this really, really nice place? In retrospect, it was, like, solid upper middle class, but to me, it was, like, very lavish. And so I think I started being very interested in that at a very young age and also attracted to the field of psychology, trying to sort out very personal things like why did my parents divorce when I was young? And that had a big impact on me and my sister. And so how can I stay married when I have kids? I mean, it was very much a personal journey. So when I got into school, I really loved psychology because I got really fascinated with making sense of my past and then wanting to help other people. And then I got out of grad school, and it sort of really came together for me. I owed $100,000 in student loan debt, and I saw a friend of mine make $100,000 trading stocks. And I remember sitting next to him on the computer, and I watched him actually buy a stock. And he was trading on margin, by the way. And I said, well, what was that stock you just bought? He bought like, a thousand shares of it. And he sort of cackled and said, I have no idea. And it was in that moment, I was like, oh, my gosh, is that easy? This is how easy it is. I'm going to become an investor. So I sold everything I had of value, which was essentially a truck. I had a used truck. I cobbled together every dime I could, and I started to trade with it. And I had a great three months, and then the tech bubble burst, and I watched my money melt, and I had all the emotions you can possibly imagine around making a terrible, terrible financial mistake. How can I be so dumb? This was all the money I had. And it was in that moment that I really turned my interest to the psychology of money, because I was really curious to figure out how I ended up here in this situation. I looked to the field of psychology, and there really wasn't anything written about this at that time. And that's really what sparked my curiosity, trying to sort out why a reasonably intelligent person would do something so stupid with his money.
- [05:17]
Christine Benz
So there's been a lot of research in the realm of behavioral finance, and especially in the realm of how investors undermine their own investing results by buying securities high and selling themselves out at a low, do you think that people have disproportionately focused on that aspect of financial psychology and perhaps done a little less in other aspects of the intersection between our finances and psychology?
- [05:46]
Dr. Brad Klontz
Sure. So I'm a very huge fan of behavioral finance. I teach a course on it at Creighton University. But the bulk of my courses and my research and my study and my interest has been a more on an individual's psychology. So we all have this cognitive. We all have these cognitive biases that mess us up, set us up to do the absolute wrong thing. You know, when the market's going up, we get all excited, we buy more and it crashes. We get all nervous and we sell. It's just the. The worst possible way to approach investing, of course, is how we're all wired to do it. I got really curious though, about my personal journey. And so the bulk of my research has been trying to figure out what are the individual beliefs we have. And I shared a little bit about my story and part of my journey in sorting out why I got to that point where I was making these ill informed decisions. Went back home and I interviewed my mother. And I'd done this to her before. Sorry, mom, been putting your recorder in front of her. Like, how did you and dad like get divorced? Where did it go wrong? But I actually did this around money. What was it like for you growing up around money? What was it like for grandma and grandpa? And when I heard her tell me her experience growing up, all the way to my grandfather's experience of losing all of his money in the Great Depression, I had light bulbs going off in my head. It's like, no wonder, no wonder I had this approach to money. And no wonder I set myself up to make these mistakes. I was playing out an entire generational family pattern around money. And that has really been the focus of my research over the last couple decades, which had previously been unresearched, which is interesting. So I went. When I did a lit review, I couldn't find anything. I was really looking for that connection that we see in every other aspect of psychology. Like your upbringing has such a profound impact on every aspect of your functioning. We just hadn't looked at it in terms of money as a profession. And so that's really been my focus.
- [07:38]
Christine Benz
So maybe you can share a little bit about your family's story and how it has influenced your own thinking about Money. I think that would be helpful to hear about your mother's story and what she told you that day.
- [07:51]
Dr. Brad Klontz
Yeah, so she told me about her experience growing up in inner city Detroit in a very low income area. And she went to a high school that had kids from the poor side of town, which was where she was from, and the rich side of town. And so every day she went into school, she was feeling really bad about herself, about lots of shame about not having enough. And that was really interesting because I grew up feeling shame, shame about our lower socioeconomic status and feeling less than. So that was really interesting because I realized what that set me up to do is what a lot of people do when you come from a lower socioeconomic background. And by the way, I've studied this and this is the pattern we've seen. People who grew up, like I grew up, tend to be more focused on money as a status indicator. And so when I got out of school, like I said, I had negative net worth of $100,000. And the first thing I did is I went out and bought a luxury watch and I bought a Hawaii heirloom bracelet, gold bracelet for my mother. And it's like, as a psychologist right now, with my expertise, I mean, that is a horrific approach to your finances when you have a negative net worth of a hundred thousand dollars. And in retrospect, though, I was trying to show the world that I had made it. I actually was wanting my mom. And I didn't think about any of this consciously. I just love my mom and I wanted to get her this shiny nice thing. But when I really dive into the psychology around it, what I wanted my mom to be able to do was to show her friends that her sacrifice paid off and that her son. Look at how good my son is doing. He bought me this. And what's so fascinating is none of that was conscious for me. It was all subconscious. The other thing I found that really, really just was profound for me is that my grandfather went to the bank one day as a young man and his money was all gone. And I just, just for the listeners out there, just imagine what experience you would have if you went to the bank or looked into your investment account and it was all gone. And not only that, the doors were locked and nobody was going to answer your call and your money was wiped out. And in retrospect, studying that and thinking about it, my grandfather had a massive trauma experience. And by the way, a lot of people did in the culture at that time. The Depression. Yeah, the Great Depression, right well, and what he. The belief he had. And so a lot of my research has been on what we call money scripts. These are beliefs we have about money that are typically outside of our conscious awareness. The belief my grandfather got, I mean, this makes sense, right? You can't trust banks with your money. He literally had the experience of being cheated out of all his money, is how he felt. He lived into his 90s, never put a dollar in the bank again the rest of his life. He was traumatized by that. And so part of my research has been looking at our intense emotional reactions to financial situations and how that plays out in our life, because an intense emotional reaction like that, a traumatic experience, will lock in a belief. And so my grandfather, that belief did not shake. The government came in and started guaranteeing bank accounts. He didn't care. His net worth was very low because he never put. He didn't care. He was not going to let that happen again. And so it's so fascinating you see that, because now, all of a sudden, when I heard that story, my mom's intense fear about losing money made sense. My mom would only put money in the bank, only in CDs, would never invest money in the stock market. And then here I come along, and as I mentioned, early on, I was at a young age, I was really like, I don't want to be poor. How do I not be poor? I'm looking around to do things differently than was being done in my family. I find this thing called investing, and I just went whoop. And I actually swung to riskiest possible way to invest your money. It's not even investing what I was doing. It was speculation. And in the midst of losing my money, it would have been so easy for me to swing back to my grandfather's belief of, you can't trust banks with your money. You can't trust investments with your money. So it's really interesting, too, because we see these patterns swinging. I call it a dysfunctional pendulum swing. You see it in other areas of people's lives, too, like alcohol, for example. If somebody has a real problem with alcoholism, quite often their kids will either struggle with alcoholism. So repeating the pattern or, like, not touch the stuff ever. There'll be a really extreme relationship with it. And that's something I noticed as a pattern in my own life. And I think if I didn't really look at it, I would have done what many people have done. Like in 2008, huge traumatic experience. 2009, for a lot of millennials who watch their parents lose their life Savings, or at least it felt like that temporarily, as long as they didn't sell, it bounced back. But many people did in a panic. And their surveys back then showed, first of all, financial planners were traumatized. And a lot of millennials had this belief, like investing, oh, my gosh, investing is not trustworthy. You're going to lose all your money. And some of those beliefs have persisted. And I just find it fascinating to watch how these things happen culturally and how they happen in our own lives. For me, all these light bulbs went off. I'm playing out patterns that have been going on for generations. And by the way, I found many of these patterns, and it's such a useful exercise to look into your history around money.
- [13:10]
Christine Benz
Yeah. So it seems like there are sort of two things. Like, there are the financial flash points. I think you call them like your grandfather's thing of showing up at the bank and finding that his money's not there anymore. So something really, you know, searing experience, as well as maybe the general sense that you talked about where you would feel like you're going to school and maybe your clothes aren't as good as your fellow students. So just a general sense that, oh, I have less than. So it seems like those two things, both those financial flash points and your general sense of well being, are the kinds of things that shape your financial psychology. Is that right?
- [13:50]
Dr. Brad Klontz
Yeah, those are two very important things, looking at those early experiences you've had around money. And some of them are really dramatic, as I just described with my grandfather. Some of them are much less dramatic. And as a child, we're trying to make sense of this experience. And sometimes our perceptions aren't very accurate, but they get associated with money. So, for example, growing up poor, you may have the belief that there's not enough money, and that's a very accurate belief, but you might also have the belief that there'll never be enough money. And so what I have seen played out in many people's lives is with an extreme. That's an extreme belief there'll never be enough money. There's a lot of intense emotion attached to it. Growing up poor, poverty is like a series of traumatic events for many people. So there's tons of emotion. And I see people quite often, the more intense the emotional experience, the more rigid the belief they hold onto, and the less flexible they are in changing it. To me, that is financial wellness. That's wellness in general, is like being able to adapt to changing times, being willing to examine your beliefs. Are they working for you? Is it helpful Is it getting you what you want if not changing your beliefs? And so the belief that there'll never be enough money in its extremes leads to people becoming almost like Ebenezer Scrooge type savers. And there's a lot of people, listeners out there who are probably really, really good at saving and investing and they've been able to build up some net worth, but deep down, or maybe even not that deep down, they have a tremendous amount of anxiety, they can't enjoy their lives. Some have even millions put aside. They would never consider themselves wealthy. They have essentially a scarce mindset, a scarcity mindset, like there's never enough, they can't enjoy their lives. What's the point of that? You know, that's not a great place to be. On the other extreme, there'll never be enough money can lead to a sense of learned helplessness, which is what we call it in psychology where you believe that no matter what you do, you'll not be able to make any changes in your life. The system is entirely rigged against you. No matter what you do, you can't get ahead. This is a learned belief based on probably a traumatic experience. And so in that situation people might be like, so why bother trying? So I'm not going to save a dime. If a credit card company is stupid enough to give me some credit, I'm going to run it up because I feel hopeless, things feel helpless, so why bother trying?
- [16:10]
Christine Benz
So I wanted to ask, something I've been wondering about is whether financial attitudes can be shaped by non financial experience. Like could someone have something traumatic happen to them that makes them risk averse in a lot of ways, including their money? And are we sometimes too focused on money experience when we're trying to think about why people navigate their finances the way they do?
- [16:37]
Dr. Brad Klontz
Yeah, I think that's a wise observation. And the first thing that comes to mind for me is that we as children too. So like with a child's mind, you don't have the full context. So for example, and I've seen this play out a lot where you would run across somebody or a story in your family history where somebody's a really bad person, you know, and mistreats people and they happen to be rich. And so then the connection with the childlike mind or even the family story being passed down, there's lots of reasons for this, is like rich people are greedy and selfish and money corrupts people. And so this association gets linked between how people are behaving in money. Another example, you're growing up in A wealthy family. And you notice that your parents don't seem to like each other very much, and they're fighting constantly. As a child, you notice this. You go to your friend's house and they're sitting around the dinner table. They don't have any money. They have dinner together every night. The family seems really close. As a child, you may erroneously associate those two things as having anything to do with each other. And so I've actually seen people, many people, living out these patterns in their lives well into their 50s and 60s, and then realizing, whoa, that really has no relationship. But I've been designing my entire life around this association. And I think one of the challenging things around money is that we rarely talk about it. So, for example, when it comes to selecting a mate, people are talking about it all the time. I mind. Isn't that what high school is all about? You're talking about who you're dating and why you're dating them and what happened on the date, and, oh, this is the type of person I want to pick. And my wife actually had a list of traits. She tells me I hit all of them. I am not just she like just being nice, but. But like, people think about it, right? They. They talk about it. You see relationships being modeled for you. You can just watch it happening. Money lies under the surface. A lot of people are very. Shame. They feel a lot of shame around money. Shame they have too much. Shame they have too little. Shame that they're doing it wrong. Shame that they're doing it right. And you're going to be jealous. So it's a real secretive topic. And so I feel like there aren't as many opportunities as we are growing up to really identify our beliefs and see them in relation to how other people are approaching things so that we can modify and change them as we go so it makes it more challenging.
- [18:55]
Christine Benz
So you referenced money scripts, which I think is a term that you coined or maybe you and your father coined. Can you talk about the key ones? I went through your questionnaire and received my rating, which was helpful feedback. But maybe you can talk about the key ones that you have identified and how they can play out in terms of how people think about their finances.
- [19:19]
Dr. Brad Klontz
Sure. And so, you know, part of this professional journey for me, I told you personally, trying to understand my own beliefs. But we went ahead and did research, and at this point, it's with tens of thousands, if not 100,000 people. And we collected over the course of years as many money beliefs as we could possibly come up with. Based on working with clients. And then we titrated those down to like cut out redundancies. And then we've administered that test to many, many people. And we found four main patterns of beliefs. We then tested these beliefs and according to income, net worth, socioeconomic status, credit card behaviors, gambling, hoarding, workaholism, a bunch of things over the years. And so we found four main categories. The first category is what we call money avoidance. And I alluded to this previously. Rich people are greedy, money is bad, money corrupts. There's virtue in having less money. This is a belief pattern that is very common in lower income areas like this. Actually, I had this belief growing up, I didn't know any rich people. And that creates a sense of discomfort. And so here I am. We don't have money. We'd love to have money. The easiest way for me to feel good about that is for me to disparage people who have money like they somehow got it by taking advantage of other people. So it's a really, really sort of convenient way to settle that cognitive dissonance which creates all this anxiety. Um, so it's a real sticky belief. And, and you will surround yourself with other people who have the same belief. And not only that, you'll have a confirmation bias where you see stories of terrible rich people. And by the way, there's a bunch of those stories out there and many of them are true, by the way. There's plenty of examples, if that's what you're looking for. And then when you hear examples of people who have money who are doing things like, you know, eradicating polio or things like that, you'll be like, oh, yeah, well they're doing it for some nefarious reason. So you will discount evidence that would challenge that belief. So that's associated with terrible financial outcomes, lower income, lower network, self destructive financial behaviors. Because as soon as you get money, subconsciously you have a negative association with it. So you will sabotage yourself. And we see a pattern with people like that who they get money and then they get rid of it. They get it and they get rid of it and they're sort of like not sure why that's happening. The second pattern we found is what we call money worship. And this is where it's sort of the opposite. It's like you put money on a pedestal. My entire life would be better if I had more money and more stuff. All my problems would melt away. I really, really want more money and more stuff. This is sort of the average American because it's associated with again, terrible financial outcomes because you think the next thing you're going to buy is going to give you that sense of happiness. Now what's fascinating, and it's a little bit crazy and it's why we're kind of crazy around money. Those two are very, very strongly correlated, like at a crazy rate. So interestingly, the people who most hate rich people are the ones who most desperately want to be rich. And it's fascinating because people have a tendency to bounce back and forth between those two. The third category we found is what we call money status. And I struggled with this when I was younger too, where I felt like I had to have outward displays of wealth to feel important. So these are beliefs like my net worth equals my self worth. If something's not the best, I'm not buying it. I would probably tell you a make more than I do just so that you'll like me and you'll respect me. Now this is a huge problem on Instagram, for example. Not to pick on Instagram, but we're inundated with all these images of how rich people are living, you know. And the unfortunate part is that it's inaccurate because of the sport category I'm about to share with you. And also all the research that's been done on millionaires and most of whom are self made and the psychology of becoming a self made millionaire is the opposite of spending your money. It's fascinating. Kind of makes sense logically, like if you want to grow your net worth, you actually have to hold onto it and invest your money. But that's not what we see on social media. So that money status is people are typically more vulnerable when they grow up with less money. They're the ones who are more likely to spend a bunch of money on luxury products with outward displays of wealth. The fourth category we found is what we call money vigilance. This category is associated with the wealthiest people that we've studied. It's beliefs like it's important to save for a rainy day. You know, I was really surprised that that wasn't a universal belief. It's not. My grandfather didn't have that belief because what's the point of saving? You know, it's all going to get taken away and erased. I'd be a nervous wreck if I didn't have money saved for an emergency. If you don't have cash, you shouldn't be buying it. And what's also interesting is if you asked me how much I made, I'd probably downplay how much I have. So this is one of the things that gets me all fired up, I'll be honest. And it makes. It drives me to TikTok and Instagram to make a bunch of videos. Tried to educate people on this because that spending mindset, that more stuff mindset, I think that's what keeps Americans really, really stuck. They're addicted to the stuff. And a big part of that is because they think that's what quote rich people do. And the irony and the tragedy is it's actually they do the opposite, like little anecdote. I grew up in a working class town in Michigan, lots of gold chains, labels, and I now live in Boulder, Colorado, which is way wealthier. And you don't see any labels. You know, you don't see any of that. So what's fascinating is the labels get bigger in the lower income areas and it really does come down to this sense of status. And it makes sense too. Like I want to show people that I'm important in some neighborhoods too. That makes you safer. An outward display of wealth makes you safer because people think, oh, that must be an important person, I shouldn't try to mess with them. And so there are all sorts of reasons we do it. But the thing that really concerns me is that young people especially are sort of being lied to and then they get stuck in this entire mindset of I need to buy more stuff to show the world I've made it and to increase my sense of self worth.
- [25:23]
Jackson Financial
At Jackson, we've created a digital retirement planning experience with you in mind. Visit Jackson.com to explore our easy to understand resources and user friendly tools that are designed to enable financial professionals and clients to plan a path to financial freedom. Jackson is short for Jackson Financial, Inc. Jackson National Life Insurance Company, Lansing, Michigan and Jackson National Life Insurance Company of New York Purchase, New York.
- [25:49]
Christine Benz
Yeah, you referenced social media and you referenced how you're on social media trying to sort of reverse some of the psychology around this. But it does seem like, you know, social media is very much feeding into this inferiority complex that a lot of people have about what they have. And so can you talk about that and how do we. I mean, it seems like we're kind of stuck here where people are feeling really bad about themselves and it can cause them to overspend. So how do we address that as a culture?
- [26:22]
Dr. Brad Klontz
Yeah, so the psychology around it is really sort of centered around this concept of relative deprivation. And it's a fascinating concept and I'd love to just spend a minute with it. So when I was growing up, you know, I'm living in a neighborhood, people have about the same kind of stuff, you know, similar size houses, driving similar cars, similar culture around, going out to eat or not or whatever. All within a certain range, you know. And so in some of my writing, we call it a financial comfort zone. You know, it's like a culture. It's like we do things in a certain way. Once a year, something would come in the mail and it was the Sears catalog. I don't know if anyone out there is old enough to remember this. That's the catalog? Yeah, that's the catalog that showed me all the stuff I didn't have that existed because nobody around me had it. And I would, I remember just having all this FOMO in that, in that, going, oh my gosh, this is incredible. I didn't even know this existed. I want all this stuff. Well, now you have a Sears catalog that's a lot fancier in your face every time you open up your phone. So the only time I was really feeling deprived at that time in my life is when I would go to a friend who was like a middle class house or upper middle class. That's when I would start feeling bad about myself, frankly. And when you get exposed, the idea of relative deprivation is it's not an actual number that determines your sense of financial wellness. It is what you have compared to your reference group. So if, for example, I'm growing up in a small village and I have five goats and my neighbor has one goat, I'm going to feel rich. Even if I'm at the level of poverty, by any objective standard, it's relative. I'm going to have the subjective experience of feeling powerful and rich and satisfied and whatever. And if I have one goat and the person next to me has spied, I'm going to feel deprived and I'm going to feel angry and I'm going to feel resentful. This is what all the research shows. And so really, our financial wellness is entirely subjective based on that, and it's based on our reference group. And so what makes it so challenging on social media? Like if you went to Instagram right now and just put in the search term rich, just see what images pop up for you. It's going to be all the stuff I'm talking about, flashy this, flashy that. And I think part of it is educating as many people as possible on what rich people actually do. And by the way, I'm so conditioned to make stuff on social media, I use words like rich and Poor, because that's how you kind of break through the noise. If you said high net worth and wealthy, nobody's going to watch your video. You got to say rich and poor. But when you look at the images of rich, quote, rich people, it is actually the opposite of what all the research shows with regard to the majority of, for example, self made millionaires in the U.S. most of them describe themselves as frugal. You know, they're anxious, they, they're worried about not having enough. That's how they're able to acquire more money because they're investors, they're more focused on investing. It's so funny. I went to a financial independence, a fire movement meetup over here in Colorado, Mr. Money Mustache Crew. Yeah, really wild. I loved it too, because do you know what they do? They sit around and brag about how little they spend. You know, and if you rolled up to one of their gatherings in a Mercedes, trust me, you would have a shame attack. People will be looking at you like, what is your problem? Oh, look at that idiot over there. Do you know how much freer you could be? And so it's so fascinating because again, it's sort of like we surround ourselves with other people who think the way we think and we're drawn to a particular culture. And that's why I really am trying to educate people on the culture of rich thinking and how they approach money to try to combat that misinformation that I see really hurting people and keeping them stuck.
- [30:11]
Christine Benz
I want to delve into money vigilance because I do think you referenced that wealthier people tend to have that characteristic or have that thought pattern. So it does appear to be correlated with better financial health. But then people can take it to an extreme. And I have to say that I've encountered that a fair amount, especially in the retirement realm where people who have the wherewithal to spend a lot more in retirement really pride themselves on spending much less than they actually could spend. And maybe they have a reason to do that. But can you talk about that, about the extreme parsimoniousness that some people have and it's kind of their identity to be an underspender. And that can mean that they short trip their lives and opportunities for giving to their loved ones and so on?
- [31:03]
Dr. Brad Klontz
Yes, and it is important to take a balanced view. Like I think I'd have, you know, much larger audience if I just went extreme on it. But as a psychologist, like just knowing that, you know, an extreme intense emotional relationship with something is rarely the most healthy Relationship. And so what's so fascinating is I spent a lot of time trying to make part of the population much more money vigilant. Okay? Like, people need to worry more about their future. People need to have a future orientation. You know, the squirrel who's not worried about starving to death in the winter saves no nuts. And fascinating world of squirrels, by the way, where when they're hiding nuts, you know, they'll kind of look around and if there's another squirrel within sight, they'll pretend to hide the nut there and then go hide it somewhere else. They've got an entirely evolved way of living through the winter. And so part of it is promoting that. You need to think about the future. You need to be concerned about it. I don't want to go off on a tangent here, but I got to tell you this. We did a study where we got people to increase their Savings rates by 73% after 1 hour, 1 hour of coming up with a real exciting vision of their future financial goals. Because we are wired to spend right now or wired to do it all wrong. The only people who are really successful at saving and investing for the future have a very clear and exciting vision of the future. Now. It actually could be a really emotionally intense fear of being poor in the future, too. But the key is that there's real strong emotions attached to this that override the natural impulse to just spend right now. Another side note, they've done studies on meditation now, by the way, I'm a huge fan of meditation. But when it comes to your finances, the more focused you are on the here and now, which is one of the goals of some forms of meditation, the less likely you are to invest for the future. And so it actually kind of harms your future in terms of financial investments and looking towards the future as well as your investment decisions. Now, like, they do studies where more people meditate now, the more they're going to respond to a stock market dropping. They're in the moment, you know, they're not future oriented. So you really do need to have a future orientation if you want to grow your net worth now. However, to your original point, you can definitely take it too far. And this is where the psychologist in me comes in. Like a straight up financial advisor perhaps, who has all the spreadsheets is be like, oh, no, no, keep the vigilance going. You know, look at those numbers. They keep growing. Look at that graph. But I feel like that's not what it's all about. It's, you know, the goal isn't just to have whoever has the most money wins at the end. I mean, to me it's about quality of life. It's about using that money in the service of your values. Like, what are you on earth to do here? You know, collect a bunch of money and then die with it? Or is that money? What does that money mean for you? Of course, a sense of safety and security. But what about a sense of adventure? What about being able to be with your family and friends? And one of the tragedies I see are people who are financially successful, but they can never turn it off. And I've seen, and I'm sure you've seen people who are so vigilant and so anxious, they destroy their relationships, their kids don't like them. There's studies on workaholism show that their children actually have more negative feelings towards them because they're not around as much. They neglect their health, they are on their deathbeds with all these unlived experiences that they wish they would have had. And nobody's sitting there saying, oh, I wish I would have. Who's wealthy? I wish I would have spent more time at work. Right? And so to me, it really is about a balance. And the challenge is, you know, we think that once you retire, then you'll do all those things. No, you won't. I mean, this is something you have to practice. And so what I like to teach my kids and frankly, what I'm trying to teach myself because I am really, really money vigilant. And one of my challenges in my own psychology is this fear that there's not going to be enough. And so what I challenge myself to do, and I'm getting better at it by the way, is using some money to enjoy my life today. And so once you've set aside money for your future, you know, you're executing on those goals, then I think you also need to focus on what can I do to enhance my life today. To me, that's what financial wellness is. You're saving for the future and you're spending today in service of your values.
- [35:26]
Christine Benz
So you referenced getting people to care more about their future selves and getting them to step up their savings rates. Do you think that maybe we do young investors a disservice by focusing disproportionately on retirement, which is a goal so far into the future, you probably don't identify with your 65 year old self. Should financial education focus more on kind of nearer term, shorter term goals as well as the thing that's way Way into the future.
- [35:58]
Dr. Brad Klontz
Yeah. So one of the chapters in my new book, Start Thinking Rich is called Retirement is for Dead people. We have 21 harsh truths in there. And it's like, oh, that's a harsh one. Like, what are you talking about? The idea of retirement in and of itself, I think, is a terrible financial goal. What do you mean by retirement? Well, I actually looked up what retirement means, and I'll give you the definition. It means to stop working. Well, of course it does, but what is the definition of work? Well, work is a mental or physical effort designed for a purpose or to produce a result. And I'm just going to suggest to you that if all of a sudden you decide that you will take no more action, mental or physical, to serve a purpose or to achieve a result, that is a terrible, terrible thing for your psychology. You'll probably slip into a depression. You'll be isolated, home alone, no friends. So the idea of, quote, retirement, I think, really needs to be examined and reexamined. One of the reasons that people don't save for retirement is because there's no connection to it. It's like, what does that mean? Like, and what I want people to do is really flesh out. Like, what exactly does that mean? Because I've seen a lot of people go through that transition and really suffer because they have no vision. Exciting vision of retirement. And for many people, you're taking away with work. And when you stop working, there goes your social connections, there goes your sense of purpose, your motivation, your passion. A lot of that gets sort of. It's baked into a job, even ones we hate. Studies also show, by the way, that people are happier at work than they are on vacation, which nobody believes me as I say that. But if we asked you, you'd say, oh, yeah, I'm definitely happier on vacation. Yeah, well, that's not how the studies go. The studies actually have you rate your happiness throughout the day, and then they go back and figure out, were you on vacation or were you at work? And it's unstructured. Free time is actually really bad for you psychologically. So I do think we need to have people create exciting visions of what they want next in life. But, like, quote, retirement is not a very exciting one. So I want to know, who are you with? What are you doing? I actually like financial freedom better because it suggests that you are free to pursue the things you most want to pursue. I've seen a lot of people retire and then go back and get another job because they're bored and miserable at Home. We actually talk about retired husband syndrome, which is an entire syndrome in Japan that they have treatment programs around because it's such a miserable experience. Or it's focused on husbands whose entire life is wrapped up in work and now they're home and making everybody miserable. So really thinking through that. So I do think it's important to have intermediary goals too. So when we do our studies, we're encouraging people to have like long term goals and then have some other ones, like is it a house, is it a vacation you want to save for? And then the key really psychologically too, is to capitalize on what's called a status quo bias. So we had people identify their top goals, name accounts after those goals, so really attach meaning to those accounts, and then automate their saving and investing towards those goals. And that's kind of the psychological hack to, you know, really focus on achieving those goals. Because with the automation you'll, you're just going to achieve it automatically. It's kind of amazing.
- [39:19]
Christine Benz
Yeah, I know you're a big believer in automation and I wanted to talk about that. Whether, you know, the great advance we made with defaulting people into 401ks and how we've seen savings rates improve as a result of that. Are there any other areas, any other kind of nudges that you think we should be thinking about to take advantage of how we're inherently wired as human beings?
- [39:46]
Dr. Brad Klontz
Yeah, so what's fascinating about that, I love those nudges, I think it's great. But what we have found in the research is that the problem with some of that is you haven't really sold people on the idea of why they're saving to begin with. And so what people will do is all of a sudden they're filling out their paperwork and you hear this all the time too. It's like, I didn't even know there was a 401K. That's why I didn't do it. And so now we have these automatic, you gotta opt outs. And then people will be like, oh look, there's an account over there, what's it called? I don't know, but there's 15 grand in it, I'm taking it out. You know, you can borrow from that. So you haven't really sold people on the concept. And so it's great, it's much better than making people opt in. But people go take from it because you really haven't sold them on the idea that they need to do this for themselves. So I do love the automation as A huge hack. But you first have to really identify and get emotionally attached to why you're going to do it to begin with. And then it's critical then, of course to name your account because there's nothing worse than a quote, checking account or savings account. Like, this is what happens psychologically. And by the way, I talk about this, right, about it all the time. But I'm going to tell you right now, if I see a huge amount of cash in my checking account, subconsciously, I feel so much abundance, right? And I start thinking about, oh, well, maybe we should go do this and go buy that. And I mean, that's just where you go automatically, which is fine if that's what that accounts for. But many of us have other goals that are more important to us. And so if you're not automating movement towards those goals and naming those accounts, you will never get ahead because you haven't thought about it, like, where you want to be ahead. And meanwhile, you know, if I have an account that's like my son, like Ethan's, you know, college savings account, there's no way I'm going to go rob for that to go out to eat, right? Or to buy appetizers or whatever, because that's associated with something that's so important to me. And that's, that's really the hack. And it's the same technique that people use to extract money from you. For example, you know, I have a really exciting vision of myself. The, you know, beautiful beach body. It's coming, baby. And I'm going to go to the gym, right? So I go sign up. And then, well, what they do is they get you on the monthly automated drip, you know, where it's like every month I'm automatically paying them. And think of the psychology that you have to go through to stop that payment. First of all, it's not easy, so I'm not going to deal with it today. And then secondly, I have to basically say to myself, okay, all right, fine, health's not important to me, and I don't really want the six pack. I mean, as soon as you start saying that, you're like, well, but I actually do. And then you talk yourself back into going to the gym, that that's kind of the cycle and it's really taking some of those hacks that take money from you. And by the way, this is the whole subscription model for everything. Like, I don't even know how many softwares I'm paying for right now. I'm not even aware of. I Need to go back and check, but it's taking that and using it for your service. So it's basically hacking your status quo bias. I'm just suggesting get super excited. You're hearing us talk right now. What are your top financial goals? Get excited about them. We had people draw pictures and make vision boards. Get a very clear, exciting vision. Go set up separate accounts for that, name those accounts, automate those accounts, and 20 years from now, you can just think back about how happy you were listening to this podcast and now you're a multimillionaire and you've achieved all your goals.
- [43:05]
Christine Benz
I wanted to ask, I went through the questionnaire that gave me some thoughts on my Money Scripts and I rated highly on Money Vigilance. Like you do you find that to be common in the people who work in the financial services profession or adjacent to it?
- [43:22]
Dr. Brad Klontz
I do. I do find that score higher with people who are attracted to finance. Probably a lot of our listeners are going to be high in that. The other pattern I've seen, and I'm not, I'm not going to make you tattle on yourself, but people who tend to be high there also tend to have an elevation, at least on the Money Worship or Money Focus scale, which by the way, are by 2 higher, higher elevated scales. Same. Yeah. And so because there's, what's so interesting about these, these Money scripts is they all have an element of truth. Right. And it's really about looking at how elevated your scale is. So I want everyone to have higher money vigilant scales. I don't want you to top it out because now I'm worried about you, that you're too anxious. I think that it is true that money can be used to enhance your life and give you access to more freedom and improve your life. I truly do believe that. But a really high elevation on that scale leads to financial ruin because you put it on a pedestal, you'll sacrifice everything. And then you're also addicted to buying stuff because you've associated those two things. So to me it's about balance. And so I love to see that Money Vigilance score elevated. But there's definitely people who need to bring, you know, calm down, calm down. You know, you got enough. Like, you don't need to be up worrying all night and not being able to sleep. That concerns me too, as somebody who's interested in your overall wellness.
- [44:45]
Christine Benz
So one thing that you do is that you work with advisors to help them work with their clients on the psychological aspects of their money. Do you get Any feedback from advisors who say, oh, my clients really don't want me to go there. They want me to focus strictly on the spreadsheets and so forth?
- [45:05]
Dr. Brad Klontz
Well, when I train advisors and when I even work with my own clients, I look at it like an iceberg. So the bulk of the iceberg is below the water. And so by me knowing about a client's psychology and knowing tools to help talk with them about how to encourage them to move towards change. So we're getting deep now, really. That's a lot of what I train advisors in, is how to help clients who may be struggling to take action on various items of their financial plan. So, for example, somebody needs a will, they need a trust, but they're not taking action on doing it. So how can I, as a financial advisor, structure conversations that increase the chances that they'll take action? The typical approach actually backfires. So when you have a client who's resisting taking a particular action, the natural response is, we call it a writing reflex in psychology, is I want to make it right. So I'm going to tell you more reasons why you should do it. And essentially, you're resisting doing it to begin with. And so you have the part of you inside. It's almost like two people inside of you, the person who wants to do it and the person who doesn't. And not to go too far along this path, but if the advisor finds resistance in a client like that and then keeps yelling louder and louder and showing them more graphs, the resistant part of the client's going to get louder and louder, and they're less likely to take action to do it. So a lot of what we're training advisors on are specific techniques they can use in working with clients to become better listeners and help facilitate change. Now, above the water, you could have direct conversations with people about their psychology around money, but I'd say, which is fine. And some clients love to talk about that, and some clients don't. But psychology and family and relationships are just baked into the pie. Like, if you're a financial Advisor, there's a 0% chance that you haven't been in a room with a couple who's not on the same page around money. And all of a sudden there might be talking, maybe they're even arguing with each other. And as an advisor, oh, my gosh, what am I supposed to do here? You know, I just. I'm supposed to just show you your portfolio, right? I don't know how to deal with this. And so. And you're not. You're not a marriage therapist, but we do train advisors on how to deal with those situations within your role as a financial advisor. So the great thing is that the CFP board is now 9%, I think roughly of the exam and the training is psychology of financial planning. And I think it really is in response to understanding that money is the biggest source of stress in people's lives. It's the number one cause of divorce in the first few years of marriage especially. It's a common cause of conflict. People are very worried about their kids when it comes to money, family dynamics around money. And so I think as an advisor, any advisor out there knows that they're constantly dealing with client emotion and client crises. Like how do you help a client manage a crisis? So that's been a lot of the focus. But there are opportunities for people who want to directly talk about their relationship with money. But I think a lot of it happens underneath the water using that iceberg concept.
- [48:15]
Christine Benz
What do you think is the next frontier in the realm of financial psychology? Are there any major areas that you believe researchers, perhaps yourself included, haven't yet delved into that you think are super important?
- [48:28]
Dr. Brad Klontz
Oh yeah. You know, I mean, when it comes to financial planning too, like there's so much research that needs to be done, you know, even the effectiveness of a financial plan. Obviously we know that, you know, investing is good for you and financial advice helps, at least helps you not self destruct. But we have a lot of ideas and concepts. But what we haven't really done as a field is nearly as much research as we should on different things we're doing with clients and measuring the effectiveness of those. And I'd say that's, that's across the board in terms of financial planning. We are a fledgling field when it comes to research around the methods we are using to try to better clients financial lives and the effectiveness of those measures so we can tweak them and make them more effective. So there's, it's a wide open field in that regard.
- [49:17]
Christine Benz
Well, Dr. Brad, this has been a fascinating conversation. We've so enjoyed chatting with you today. Congratulations on the book and thank you so much for being here.
- [49:26]
Dr. Brad Klontz
Thanks for having me.
- [49:32]
Christine Benz
Thank you for joining us on the longview. If you could please take a moment to subscribe to and rate the podcast on Apple, Spotify or wherever you get your podcasts. You can follow me on social media at ChristineBenz on X or ChristineBenz on LinkedIn. George Cassidy is our engineer for the podcast and Cary Gretchik produces the show notes each week. Finally, we'd love to get your feedback. If you have a comment or a guest idea, please email us@thelongview morningstar.com until next time. Thanks for joining us.
- [50:11]
Disclosure Announcer
This recording is for informational purposes only and should not be considered investment advice. Opinions expressed are as of the date of recording and are subject to change without notice. The views and opinions of guests on this program are not necessarily those of Morningstar, Inc. And its affiliates, which together we refer to as Morningstar Morningstar. Morningstar is not affiliated with guests or their business affiliates. Unless otherwise stated. Morningstar does not guarantee the accuracy or the completeness of the data presented herein. This recording is for informational purposes only and the information, data analysis or opinion it includes or their use should not be considered investment or tax advice and therefore is not an offer to buy or sell a security. Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from or related to the information, data analyses or opinions or their use. Past performance is not a guarantee of future results. All investments are subject to investment risk, including possible loss of principal. Individuals should seriously consider if an investment is suitable for them by referencing their own financial position, investment object objectives and risk profile before making any investment decision. Please consult a tax and or financial professional for advice specific to your individual circumstances.
- [51:48]
Dr. Brad Klontz
SA.